Netflix, Inc. (NASDAQ:NFLX) reported its Q1 earnings yesterday evening and investors were pumped. The company marked record, 43% revenue growth for the quarter and handily beat forecasts by adding 7.4 million new subscribers for the quarter — up 50% compared to last year.
And with up to $8 billion earmarked in spending on content for 2018, the company expects that subscriber growth to continue. The reaction to the Netflix earnings was immediate and enthusiastic. in after hours trading, Netflix stock was up as much as 7%.
Earnings Report Drives Netflix Stock Surge
Netflix is the dominant player in the streaming video business, and it’s accustomed to putting up big numbers. But Q1 2018 was new territory for the company. NFLX added 7.41 million new subscribers for the quarter, up 50% year-over-year, and significantly higher than the 6.35 million it had forecast. Of those new subscribers, 1.96 million were in the U.S., and the rapid growth happened despite the completion of a “price adjustment” — raising its rates.
That combination of subscriber growth and increased rates resulted in revenue of $3.7 billion for the quarter. That’s a growth rate of 43% year-over-year, and what NFLX describes as “the fastest pace in the history of our streaming business.”
The company is anticipating spending $7.5 billion to $8 billion on content for 2018, and expects that investment to pay off with more record growth in subscribers. It’s currently forecasting 6.2 million for Q2 (compared to 5.2 million in Q2 2017).
In aftermarket trading, Netflix stock spiked nearly 7% at one point.
Increased Competition on the Horizon
The Netflix earnings report was good news for investors, and shows the company continues to have momentum. With increased revenue per user, and subscriber growth — both worldwide and in the U.S. — continuing to accelerate, there’s still plenty of room for Netflix stock to grow.
However, things are likely to get more difficult in the not too distant future. Right now, NFLX has to contend with rival streaming video services like Amazon.com, Inc.’s (NASDAQ:AMZN) Amazon Prime Video. Amazon is spending big dollars on programming and rapidly building its subscriber base. With those subscribers helping to drive Amazon Prime memberships, and spending on the website, expect Amazon to continue pushing to catch Netflix.
But the big threat is Walt Disney Co (NYSE:DIS). Disney owns a vast array of original content, including movies and TV shows. It’s launching a video streaming service to compete with Netflix in 2019. And the Disney streaming service is loaded with problems that could impact NFLX and hit Netflix stock. Don’t expect to see Disney-owned content on Netflix once its own streaming service launches, at least not any movies. And there is the possibility that Disney could shake up the industry by streaming its blockbuster movies — like “Black Panther” — at the same time they’re in theaters.
However, that is in the future and nothing is certain about Disney’s plans. What is known right now is that NFLX is on a roll and that looks to be continuing through this year. Netflix stock is up nearly 110% in the past year, and based on the trends in that Q1 earnings report, the good times for NFLX investors seem likely to continue through 2018.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.